OZ Minerals’ quarterly results to dampen gold mining expectations

With OZ Minerals – the frontrunner to establish a commercial gold mine in Cambodia – looking to roughly treble its current resource to justify production, 2011 was always going to be a critical year for the country’s nascent mining industry.

Unfortunately, the Australian firm’s latest results published on Thursday mean Cambodia remains no nearer to a lucrative first gold operation. In many ways the disappointing drill programme at Mesam in Mondulkiri province suggests the country’s gold mining sector has taken a step backwards.

OZ’s results for the first quarter noted that seven of a proposed 10 exploration drills led to mineralisation results inferior to the firm’s key resource at Okvau, the site of an inferred resource of some 600,000 ounces.

That means Mesam is looking increasingly unlikely as a viable production site, as the company looks to secure total deposits of roughly 2 million ounces to justify a commercial gold mine in Cambodia.

Overall, this puts the firm’s operations in this country in doubt – for the first time following promising results at Okvau during the first quarter of 2010, OZ has hinted it may pull out of the project.

“Results from the current exploration program at Mesam will be taken into consideration as part of the review of the gold assets in Cambodia,” said last week’s company report for the first quarter.

OZ retains the right to enter a joint venture in Mesam “should results warrant”, but at the moment they simply do not.

Should OZ Minerals pull out of Cambodia, the repercussions for commercial gold mining here would be significant.

Firstly, the country’s most promising gold resource would be shown to be not that promising after all, and the long process towards production would essentially halt.

Also, the exit of a major mining firm from Cambodia would hardly contribute to confidence during a period that has seen a number of international mining firms issue shares in a bid to raise capital to conduct exploration here. The problem is few other mining companies are anywhere near as close as OZ to producing gold or indeed any other mineral on a commercial level.

The government has stated publicly in the past that it has actively sought to attract mining companies of the calibre of OZ Minerals, to contribute to good practice in the sector.

The prospect the company may leave without producing minerals is therefore a sorry one for Cambodian mining.

With more drilling to do at Mesam and elsewhere in the surrounding area, OZ still has more opportunities to locate further promising gold mineralisation in Cambodia.

But with every disappointing drill, the possibility that the company could stay here diminishes, and with it the prospect of a commercial gold mine in the near term.